<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-Q
(Mark One)
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996 OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-12138
Net England Realty Associates Limited Partnership
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2619298
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
39 Brighton Avenue, Allston, Massachusetts 02134
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (617) 783-0039
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ___X___ No _______
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements.
Balance Sheets - March 31, 1996
and March 31, 1995 1
Statements of Operations - Three Months
Ended March 31, 1996
and March 31, 1995 2
Statements of Cash Flows - Three Months
Ended March 31, 1996 and
March 31, 1995 3
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Summary of Financial Data
SIGNATURES
<PAGE>
CONSOLIDATED BALANCE SHEETS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
----------- ------------
<S> <C> <C>
ASSETS
Rental Properties. . . . . . . . . . . . . . . $51,312,772 $51,688,269
Cash and Cash Equivalents. . . . . . . . . . . 2,936,678 2,706,124
Short-term Investments . . . . . . . . . . . . 49,583 48,877
Rents Receivable . . . . . . . . . . . . . . . 683,715 684,409
Real Estate Tax Escrows. . . . . . . . . . . . 470,135 538,945
Prepaid Expenses and Other Assets. . . . . . . 1,880,314 1,933,472
Investment in Joint Venture. . . . . . . . . . 124,929 129,989
Financing and Leasing Fees . . . . . . . . . . 1,922,275 2,020,885
----------- ------------
TOTAL ASSETS $59,380,401 $59,750,970
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Mortgages Payable. . . . . . . . . . . . . . . $52,942,897 $53,072,037
Accounts Payable and Accrued Expenses. . . . . 766,623 804,865
Advance Rental Payments and Security
Deposits . . . . . . . . . . . . . . . . . . 1,535,843 1,550,666
----------- ------------
Total Liabilities. . . . . . . . . . . . . . 55,245,363 55,427,568
Commitments and Contingent Liabilities
(Notes 8 and 11) . . . . . . . . . . . . . .
Partners' Capital:
177,152 units outstanding in 1996
and 1995 . . . . . . . . . . . . . . . . . . 4,135,038 4,323,402
----------- ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $59,380,401 $59,750,970
----------- ------------
----------- ------------
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Unaudited)
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Rental income . . . . . . . . . . . . . . . $4,174,415 $2,244,234
Laundry and sundry income . . . . . . . . . 61,049 34,253
---------- ----------
4,235,464 2,278,487
---------- ----------
Expenses:
Administrative. . . . . . . . . . . . . . . 170,143 143,609
Depreciation and amortization . . . . . . . 690,966 421,288
Interest. . . . . . . . . . . . . . . . . . 1,167,162 480,256
Management fees . . . . . . . . . . . . . . 180,412 102,201
Operating . . . . . . . . . . . . . . . . . 651,582 279,797
Renting . . . . . . . . . . . . . . . . . . 14,933 29,949
Repairs and maintenance . . . . . . . . . . 546,713 322,999
Taxes and insurance . . . . . . . . . . . . 459,819 256,977
---------- ----------
3,881,730 2,037,076
---------- ----------
Income from Operations. . . . . . . . . . . . 353,734 241,411
---------- ----------
Other Income:
Interest income . . . . . . . . . . . . . . 52,961 11,248
Income from investments in partnerships
and joint venture . . . . . . . . . . . . 6,307 9,600
---------- ----------
59,268 20,848
---------- ----------
Net Income. . . . . . . . . . . . . . . . . . $ 413,002 $ 262,259
---------- ----------
---------- ----------
Net Income per Unit . . . . . . . . . . . . . $ 2.33 $ 1.48
---------- ----------
---------- ----------
Weighted Average Number of Units
Outstanding . . . . . . . . . . . . . . . . 177,152 177,152
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
Three Months Ended
March 31,
(Unaudited)
1996 1995*
---------- ----------
Cash Flows from Operating Activities:
Net income $ 413,002 $ 262,259
---------- ----------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 690,966 421,288
(Income) from investments in
partnerships and joint venture (6,307) (9,600)
Decrease (Increase) in rents receivable 695 77,742
(Increase) in financing and
leasing fees (9,467) (27,108)
(Decrease) in accounts payable
and accrued expenses (38,242) (9,711)
(Increase) Decrease in real estate
tax escrows 68,810 (18,756)
(Increase) Decrease in prepaid
expenses and other assets 53,158 (1,865)
Increase (Decrease) in advance rental
payments and security deposits (14,823) 33,097
---------- ----------
Total Adjustments 744,790 465,087
---------- ----------
Net cash provided by
operating activities 1,157,792 727,346
---------- ----------
Cash Flows from Investing Activities:
Distribution from the joint venture 11,367 17,743
Payment for purchase and improvement
of rental properties (207,393) (194,603)
Purchase of short-term investments (706) (846)
---------- ----------
Net cash (used in)
investing activities (196,732) (177,706)
---------- ----------
See notes to consolidated financial statements.
*Certain items have been re-classified for comparative purposes.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
Three Months Ended
March 31,
(Unaudited)
1996 1995
---------- ----------
Cash Flows from Financing Activities:
Principal payments and early
repayment of mortgages payable (129,140) (83,259)
Distributions to partners (601,366) (598,366)
---------- ----------
Net cash (used in) financing activities (730,506) (681,625)
---------- ----------
Net Increase (Decrease) in Cash and
Cash Equivalents 230,554 (131,985)
Cash and Cash Equivalents, Beginning 2,706,124 996,353
---------- ----------
Cash and Cash Equivalents, Ending $2,936,678 $ 864,368
---------- ----------
---------- ----------
See notes to consolidated financial statements.
4
<PAGE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
Partners' Capital
-------------------------------------------------
Limited General
------------------------ -------
Class A Class B Class C Total
---------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $6,717,849 $1,598,946 $84,184 $8,400,979
Distributions to Partners (478,693) (113,690) (5,983) (598,366)
Net Income 209,807 49,829 2,623 262,259
---------- ---------- ------- ----------
Balance, March 31, 1995 $6,448,963 $1,535,085 $80,824 $8,064,872
---------- ---------- ------- ----------
---------- ---------- ------- ----------
Units authorized and issued,
net of 3,073 Treasury Units,
at March 31, 1995 141,722 33,659 1,265 177,152
---------- ---------- ------- ----------
---------- ---------- ------- ----------
Balance, January 1, 1996 $3,455,787 $ 824,206 $43,409 $4,323,402
Distributions to Partners (481,093) (114,260) (6,013) (601,366)
Net Income 330,402 78,470 4,130 413,002
---------- ---------- ------- ----------
Balance, March 31, 1996 $3,305,096 $ 788,416 $41,526 $4,135,038
---------- ---------- ------- ----------
---------- ---------- ------- ----------
Units authorized and issued,
net of 3,073 Treasury Units
at March 31, 1996 141,722 33,659 1,265 177,152
---------- ---------- ------- ----------
---------- ---------- ------- ----------
</TABLE>
See notes to financial statements
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Line of Business: New England Realty Associates Limited Partnership ("NERA"
or the "Partnership") was organized in Massachusetts during 1977. NERA and
its subsidiaries own and operate various residential apartment buildings,
condominium units, and commercial properties located in Massachusetts,
Connecticut, New Hampshire, and Maine. NERA has also made investments in
other real estate partnerships and has participated in other real
estate-related activities, primarily located in Massachusetts. In connection
with the new mortgages referred to in Note 5 a substantial number of NERA's
properties were restructured into separate limited partnerships. The
financial statements for prior periods are unchanged.
Principles of Consolidation: The consolidated financial statements include
the accounts of NERA and its subsidiary partnerships each of which is owned
99.67%; the consolidated group is referred to as the "Partnerships." Minority
interests are not recorded since they are insignificant. All significant
intercompany accounts and transactions are eliminated in consolidation. The
Partnership accounts for its investment in the joint venture on the equity
method.
Accounting Estimates: The preparation of the financial statements is in
accordance with generally accepted accounting principles (GAAP), requiring
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reported period.
Revenue Recognition: Certain leases of the commercial properties provide for
increasing stepped minimum rents which are accounted for on a straight-line
basis over the term of the lease.
Rental Properties: Rental properties are stated at cost less accumulated
depreciation. Maintenance and repairs are charged to expense as incurred;
improvements and additions are capitalized. When assets are retired or
otherwise disposed of, the cost of the asset and related accumulated
depreciation is eliminated from the accounts, and any gain or loss on such
disposition is included in income. Rental properties are depreciated on the
straight-line method over their estimated useful lives. In the event that
facts and circumstances indicate that the carrying value of rental properties
may be impaired, an analysis of recoverability is performed. The estimated
future undiscounted cash flows are compared to the assets's carrying value to
determine if a write-down to fair value or discounted cash flow value is
required. This policy was adopted in 1995. Previously, impairment was
considered on a case by case basis. See Note 2 for the effect of this
accounting change.
Financing and Leasing Fees: Financing fees are capitalized and amortized
using the interest method over the life of the related mortgages. Leasing
fees are capitalized and amortized on a straight line basis over the life of
the related lease.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes: The financial statements have been prepared under the basis
that NERA and its subsidiaries are entitled to tax treatment as partnerships.
Accordingly, no provision for income taxes on income has been recorded.
Cash Equivalents: The Partnerships consider all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.
Short-Term Investments: The Partnerships consider short-term investments to
be any bank certificates of deposit, Treasury obligations, or commercial
paper with initial maturities between three and twelve months. These
investments are considered to be trading account securities and are carried
at fair value.
Concentration of Credit Risks and Financial Instruments: The Partnerships'
tenants are located in New England, and the Partnerships are subject to the
general economic risks related thereto. No single tenant accounted for more
than 5% of the Partnerships' revenues in 1996 or 1995. The Partnerships make
their temporary cash investments with high credit quality financial
institutions or purchase money market accounts invested in U.S. Government
securities. At March 31, 1996, approximately $2,500,000 of cash and cash
equivalents exceeded federally insured amounts of which approximately
$2,086,000 was invested in a money market fund invested in U.S. Government
securities.
NOTE 2--RENTAL PROPERTIES
Rental properties consist of the following:
March 31, December 31, Useful
1996 1995 Life
--------------- ---------------- --------------
Land $ 9,554,732 $ 9,554,732 --
Buildings 42,988,784 42,988,784 25-31 years
Building improvements 9,526,532 9,437,144 15-31 years
Kitchen cabinets 1,138,973 1,089,407 5-10 years
Carpets 1,078,166 1,028,473 5-10 years
Air conditioning 87,745 87,745 7-10 years
Land improvements 422,646 422,646 10-31 years
Laundry equipment 48,252 46,994 5-7 years
Elevators 16,842 16,842 20 years
Swimming pools 42,450 42,450 10 years
Equipment 175,984 166,132 5-7 years
Motor vehicles 46,704 46,704 5 years
Fences 22,229 22,229 5-10 years
Furniture and fixtures 103,429 95,793 5-7 years
Smoke alarms 6,224 6,224 5-7 years
--------------- ----------------
65,259,692 65,052,299
Less accumulated
depreciation 13,946,920 13,364,030
--------------- ----------------
$ 51,312,772 $ 51,688,269
--------------- ----------------
--------------- ----------------
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 2--RENTAL PROPERTIES (CONTINUED)
On June 30, 1995, the Partnerships purchased for $30,198,000 five properties
containing an aggregate of 809 residential apartments and 18,400 square feet
of commercial space. The purchase was paid for in part with the proceeds of
the refinancing of thirteen of the Partnerships' properties and the issuance
of new mortgage notes payable aggregating $22,627,000 and maturing in ten
years. The properties were acquired from a trust owned nominally by the
majority shareholder of NERA's general partner. In substance, the properties
were owned by the trust's secured lender under a previous restructuring
agreement whereby the lender received all of the operating income from the
properties as well as the proceeds from the sale to NERA. The Partnerships
have recorded the purchase at the amount paid for the properties and have
allocated the amounts to the individual properties acquired. An entity owned
by the majority shareholder of the Partnership's general partner received a
fee of $300,000 from the trust's secured lender.
Included in rental properties at March 31, 1996 is a building in Newton,
Massachusetts acquired by the Partnership on January 25, 1995. The building
consists of 21,223 square feet of commercial space, 9 residential units and
29 parking spaces for a total purchase price of $1,925,000. This building was
acquired from an entity in which the majority shareholder of NERA's general
partner had a substantial ownership interest. The Partnership's management
company received a fee of approximately $11,000 from the seller in this
transaction. To facilitate this acquisition, the Partnership's management
company, an entity owned by the majority shareholder of NERA's general
partner, loaned the Partnership $1,175,000 in December 1994. In May 1995, the
Partnership refinanced this property and obtained a $1,329,000 mortgage
payable in 10 years with interest at 9.25%, and paid off the existing loan of
$1,175,000 to the management company. Total interest paid on this loan was
$38,073 (at an interest rate of 8.5%).
In 1995, the Partnership sold two condominiums located in Stoneham and Boston
Massachusetts. The gain of $152,463 is included in net income for the year
ended December 31, 1995.
In the fourth quarter of 1995, the Partnerships recorded a special charge of
$3,250,000 relating to the early adoption of Statement of Financial
Accounting Standards No. 121 (FAS 121) on accounting for the impairment of
long-lived assets effective for fiscal years beginning after December 15,
1995. This statement requires that long-lived assets held and used by the
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
During 1995, the Lewiston Mall with a carrying value of approximately
$8,200,000 was remortgaged for $2,933,000. As part of this refinancing, the
lender obtained an appraisal of $5,000,000. A further analysis of estimated
future cash flows as required by FAS 121 indicated this change. The
carrying value of the Lewiston Mall has been reduced to the net present value
of expected future cash flows, which approximates the aforementioned
appraisal. Similar analysis of the other properties did not result in
impairment.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 3--RELATED PARTY TRANSACTIONS
The Partnerships' properties are managed by an entity which is owned by the
majority shareholder of the General Partner (see Note 11). The management fee
is equal to 4% of rental revenue and laundry income. Total fees paid were
$180,412, and $102,201 for the three months ended March 31, 1996 and 1995,
respectively. Advance rental payments and security deposits are held in
escrow by the management company (see Note 6). The management company also
receives a mortgage servicing fee equal to an annual rate of 1/2% of the
monthly outstanding balance of mortgages receivable resulting from the sale
of property. There were no mortgage servicing fees paid in 1996 and 1995.
The Partnership Agreement also permits the General Partner or management
company to charge the costs of professional services (such as counsel,
accountants, contractors) to NERA. During the three months ended March 31,
1996 and 1995 approximately $66,000, and $30,000 was charged to NERA for
legal, maintenance, architectural services, and supervision of capital
improvements. Approximately $14,000 was capitalized during the three months
ended March 31, 1996, in leasehold improvements, and the balance of
approximately $52,000, was included in administrative expense. Additionally
in 1995, the Partnership paid to the management company $30,000 for
accounting services previously provided by an outside company.
The Partnership Agreement entitles the General Partner or a management
company to receive certain commissions upon the sale of partnership property
only to the extent that total commissions do not exceed 3%. No such
commissions were paid in 1996 or 1995.
Included in prepaid expenses and other assets were amounts due from related
parties of $352,792 at March 31, 1996 and $366,258 at December 31, 1995,
representing Massachusetts tenant security and prepaid rent deposits, which
are held for the Partnerships by another entity also owned by one of the
shareholders of the General Partner (see Note 6).
Also included in prepaid expenses and other assets is an insurance reserve
account funded by the Partnerships and held by the management company. The
insurance reserve includes funds from other properties which are also owned
by the related parties. The balance in the reserve was $105,924 at March 31,
1996 and December 31, 1995.
See Note 9 for rental arrangements with the Timpany Plaza joint venture.
As described in Note 4, the Partnership has interests in certain entities in
which the majority shareholder of the General Partner is also involved.
See Note 2 for fees paid to related parties by the sellers of the
Partnerships' 1995 acquisitions.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 4--OTHER ASSETS
The short term investment totalling $49,583 at March 31, 1996 and $48,877 at
December 31, 1995 is carried at cost which approximates fair value. Such
investment at March 31, 1996 is a 5.07% certificate of deposit maturing in
February 1997. The issuer and amount of this investment is as follows:
March 31, December 31,
1996 1995
--------- ------------
Citizens Bank - Certificate of deposit. . . . . 49,583 48,877
--------- ------------
$49,583 $48,877
--------- ------------
--------- ------------
The carrying value of the Partnership's 50% interest in the Timpany Plaza
Joint Venture, at equity, is $124,929 at March 31, 1996 and $129,989 at
December 31, 1995.
The Partnership owns a 10% ownership interest in three real estate
partnerships accounted for by the equity method and reduced to a carrying
value of zero. Losses in excess of cost in limited partnerships have not been
recorded as the Partnership is not liable for such amounts. During the fourth
quarter of 1995, the real estate owned by another partnership in which NERA
had a 10% ownership interest was sold for less than the mortgage debt.
Accordingly, NERA did not receive proceeds from this sale.
The majority shareholder of the General Partner is also the majority owner of
these partnerships (see Note 11). There can be no assurance that any of
NERA's partnership investments will be realizable in the future in excess of
their carrying value.
NOTE 5--MORTGAGES PAYABLE
At March 31, 1996 and December 31, 1995 the mortgages payable consisted of
various loans, substantially all of which were secured by first mortgages on
properties referred to in Note 2, with interest ranging from 8.25% to 10.99%,
payable in monthly installments currently aggregating approximately $431,000,
including interest, to various dates through 2005. Although the loans mature
within ten years, they are being amortized on a basis between 25 and 27.5
years. The carrying amounts of the Partnerships' mortgages payable
approximate their fair value.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 5--MORTGAGE PAYABLE (CONTINUED)
The Partnerships have pledged tenant leases as additional collateral for
certain of their mortgages.
Approximate annual maturities are as follows:
<TABLE>
<S> <C>
1997 - current maturities $ 538,425
1998 593,814
1999 647,514
2000 706,109
2001 770,050
Thereafter 49,686,985
-----------
$52,942,897
-----------
-----------
</TABLE>
NOTE 6--ADVANCE RENTAL PAYMENTS AND SECURITY DEPOSITS
The lease agreements for certain properties require tenants to maintain a
one-month advance rental payment and security deposits. The funds are held in
escrow by another entity owned by the majority shareholder of the General
Partner (See Notes 3 and 11).
NOTE 7--PARTNERS' CAPITAL
The Partnership has two categories of limited partners (Classes A and B) and
one category of General Partner (General Partner). Under the terms of the
Partnership Agreement, Classes B units and General Partnership units must
represent 19% and 1% respectively of the total units outstanding. All classes
have equal profit-sharing and distribution rights in proportion to their
ownership interests.
The Partnership declared distributions of $3.40 per unit in the first
quarters of 1996 and 1995.
The Partnership has entered into a deposit agreement with a bank to
facilitate public trading of limited partners' interest in Class A units.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 7--PARTNERS' CAPITAL (CONTINUED)
Under the terms of this agreement, the holders of Class A units have the
right to exchange each Class A unit for ten Depositary Receipts. The
following is information of the net income per Depositary Receipt:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Net Income Per Depository Receipt $.23 $.15
---- ----
---- ----
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES
From time to time, the Partnerships are involved in various ordinary routine
litigation incidental to their business. The Partnerships are not involved in
any material pending legal proceedings.
NOTE 9--RENTAL INCOME
In 1996, approximately 82% of rental income is related to residential
apartment and condominium units with leases of one year or less. The
remaining 18% is related to commercial properties which have minimum future
rental income on noncancellable operating leases as follows:
<TABLE>
<CAPTION>
Commercial
Property
Leases Land Leases Total
----------- ----------- -----------
<S> <C> <C> <C>
1997 $ 1,696,875 $ 130,000 $ 1,826,875
1998 1,666,680 130,000 1,796,680
1999 1,478,514 130,000 1,608,514
2000 1,229,596 130,000 1,359,596
2001 927,143 130,000 1,057,143
Thereafter 5,205,824 1,377,833 6,583,657
----------- ---------- -----------
$12,204,632 $2,027,833 $14,232,465
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 9--RENTAL INCOME (CONTINUED)
In August 1988, the Partnership entered into a land lease agreement with an
existing tenant of the Timpany Plaza Shopping Center in Gardner,
Massachusetts. As part of this lease, the tenant, at its cost, demolished
approximately one-third of the mall and replaced it with a new store of
comparable size. The minimum fixed term of this lease is for 20 years which
commenced with the opening of the new store in December 1989.
The minimum annual rents are $110,000 per year for the first five years,
increasing each subsequent five-year period with the average being $137,500
per year for the minimum twenty-year term. Included in rents receivable at
March 31, 1996 and December 31, 1995 is $192,250 and $158,000 respectively,
representing the deferred rental income from this lease. There are also
contingent rents based upon sales volume, common area maintenance, and other
charges. This lease also provides for six extension periods of five years
each at increased rents. The minimum rents pertaining to this agreement are
reflected in the foregoing table.
The ownership of this new building addition transfers to the Partnership at
the termination of the lease. Accordingly, the Partnership included in
property assets approximately $1,400,000 of book value of the demolished
building allocable to the Partnership leasehold interest and is depreciating
this amount on a straight-line basis over a twenty-year period.
Concurrently, the Partnership entered into a joint venture with this same
tenant relating to the space formerly leased by the tenant. Under this
arrangement, the two parties have agreed to relet the space and divide the
net income or loss after paying to the Partnership an annual minimum rent of
$84,546. The Partnership's share of income was $6,307 and $9,600, for the
three months ended March 31, 1996 and 1995 respectively.
The aggregate minimum future rental income does not include contingent
rentals which may be received under various leases in connection with
percentage rents, common area charges, and real estate taxes. Aggregate
contingent rentals were approximately $195,000, and $170,000 for the three
months ended March 31, 1996 and 1995 respectively.
NOTE 10--CASH FLOW INFORMATION
During the three months ended March 31, 1996 and 1995, cash paid for interest
was $1,165,258, and $469,277 respectively.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTE 11--BANKRUPTCY OF RELATED PARTIES
As described in Notes 3, 4 and 6, the Partnerships had transactions with and
have interests in certain entities in which the majority shareholder of the
General Partner is involved. Such shareholder had guaranteed certain notes
receivable and had agreed to indemnify the Partnerships for losses incurred
from certain partnerships in which NERA is a General Partner. During March
1991, this shareholder, the Partnerships' management company,and other
related entities filed for protection from their creditors under Chapter 11
of the Federal Bankruptcy Code.
In September 1992, the U.S. Bankruptcy Court confirmed a reorganization plan
pursuant to which this shareholder was discharged of all liabilities
including all guarantees and indemnifications.
The management of the Partnership believes that the proceedings described
above will not adversely affect the Partnerships' properties or operations.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Results of Operations
Income from operations for the three months ended March 31, 1996 was
approximately $354,000, compared to approximately $241,000 for the same
period in 1995, an increase of approximately $113,000. Net cash provided by
operations for the three months ended March 31, 1996 was approximately
$1,158,000 compared to approximately $727,000 during the same period in 1995,
an increase of approximately $431,000. This increase is due to the increase
in income from operations as well as decreases in real estate tax escrow
accounts and prepaid expenses.
Rental income during the three months ended March 31, 1996 was
approximately $4,174,000 compared to approximately $2,244,000 for the same
period in 1995, an increase of approximately $1,930,000. This increase is due
to rental income of approximately $1,790,000 from the five properties
acquired during the latter part of 1995. Rental income from existing
properties increased approximately $120,000. The increase in the existing
properties reflects an increase in rental income from the Lewiston Mall
Shopping Center as a result of a settlement received from a tenant due to an
early lease termination of such tenant's lease. The net proceeds from this
settlement was approximately $85,000. The other increase in rental income was
from the Timpany Plaza Shopping Center in the amount of $31,000 as a result
of increases in percentage rents and real estate taxes.
Expenses for the three months ended March 31, 1996 were approximately
$3,882,000 compared to approximately $2,037,000 for the same period in 1995,
an increase of approximately $1,845,000. The majority of this increase
represents the costs associated with the newly acquired properties. Interest
expense increased approximately $687,000 due to a higher level of debt, and
depreciation and amortization increased approximately $270,000 due to the
increase in rental properties. The operating expenses of the existing
properties remained relatively stable in the first quarter of 1996 compared
to the first quarter of 1995.
Interest income for the three months ended March 31, 1996 was
approximately $53,000 compared to approximately $11,000 for the same period
in 1995, an increase of approximately $42,000. This increase represents the
receipt of $19,790 during the first quarter of 1996 from interest on the
deposit held in escrow related to the newly acquired properties. In addition,
there was an increase in funds available for investment during the first
quarter of 1996 compared to 1995.
15
<PAGE>
During the year ended December 31, 1995, the Partnership sold two
condominium units for a total gain of approximately $152,000.
The Partnership is a partner in a joint venture with a tenant at the
Timpany Plaza Shopping Center in Gardner, Massachusetts. Under the terms of
the agreement, the parties have agreed to relet the space and divide the net
income or loss after paying to the Partnership an annual minimum rent of
approximately $84,000. The Partnership's investment in the Timpany Plaza
joint venture represents less than 1% of the Partnership's assets.
The Partnership's share of income in the joint venture at the Timpany
Plaza Shopping Center was approximately $6,300 for the first quarter of 1996
compared to income of approximately $9,600 for the first quarter of 1995.
In March 1996, a major tenant in the Timpany Plaza Shopping Center filed
for bankruptcy under Chapter 11. This tenant paid approximately $347,000 of
rent in 1995 and was current through May 1996. The tenant is considering
keeping the space in the mall thru the end of the year.
As a result of the changes discussed above, net income for the three
months ended March 31, 1996 was $413,002 compared to $262,259 for the same
period in 1995, an increase of $150,743.
Liquidity and Capital Resources
The Partnership's principal source of cash during 1996 and 1995 was the
collection of rents and the refinancing of Partnership properties. The
majority of cash and cash equivalents of $2,936,678 at March 31, 1996 and
$2,706,124 at December 31, 1995 is invested in a U.S. government money market
account.
The Partnership believes it strengthened its portfolio by making
significant acquisitions of residential and mixed-use properties in 1995.
During 1995, the Partnership acquired six properties for a total purchase
price of approximately $32,123,000. The acquisitions were financed by
$23,956,000 of new mortgages on the acquired properties. Additional funds of
$22,446,000 were provided by obtaining 13 mortgages on refinanced or
debt-free properties.
16
<PAGE>
Approximately $10,900,000 of this amount was used to repay existing mortgages
and approximately $11,546,000 was used in the acquisition of the above
properties. In connection with these mortgages, the lender required that
separate escrow accounts totaling approximately $870,000 be established to
fund capital improvements at the properties. The Partnership is also required
by the lender to make additional monthly payments of approximately $34,000 to
fund these escrow accounts. These monthly payments to these escrow accounts
are in addition to the monthly mortgage payments. In connection with these
new mortgages, a substantial number of the Partnership's properties were
restructured into separate Subsidiary Partnerships.
During the first quarter of 1996, the Partnership and its Subsidiary
Partnerships completed approximately $208,000 of capital improvements to their
properties. These improvements were funded from the aforementioned escrow
accounts and cash reserves. The most significant improvements were made at
the Westgate Woburn Apartments in Woburn, Massachusetts for a total cost of
approximately $71,000. Additional capital improvements of approximately
$24,000, $21,000, and $20,000 were made to apartments at the Courtyard on
North Beacon, 62 Boylston Street, and Redwood Hills properties, respectively.
In 1996, the Partnership and its Subsidiary Partnerships anticipate
investing approximately $1,400,000 in capital improvements in the residential
and commercial properties. These improvements will be funded from escrow
accounts as well as from cash reserves.
The Partnership anticipates that available cash and interest-bearing
investments, collection of rents, and proceeds from the sale and refinancing
of Partnership properties will be sufficient to finance current improvements
to its properties. As a result of the sale of properties, unanticipated
increases in expenses, or a loss of a significant tenant, the Partnership's
net income and cash flow may fluctuate dramatically from year to year.
Since the Partnership's long term goals include the acquisition of
additional properties, a portion of the proceeds from the refinancing and
sale of properties is reserved for this purpose. The Partnership will
consider refinancing existing properties if either insufficient funds exist
from cash reserves to repay existing mortgages or if funds required for
future acquisitions are not available.
The Partnership paid a distribution of $3.40 per Partnership unit ($0.34
per depository receipt) during the first quarters of 1996 and 1995.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits.
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K.
No Current Reports on Form 8-K were filed during
the quarter ended March 31, 1996
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1996
NEW ENGLAND REALTY ASSOCIATES
LIMITED PARTNERSHIP
By: NEWREAL, INC.,
its General Partner*
By: /s/ Ronald Brown
----------------------------------
Ronald Brown, President
By: /s/ Harold Brown
----------------------------------
Harold Brown, Treasurer
* Functional equivalent of Chief
Executive Officer, Principal
Financial Officer and Principal
Accounting Officer.
19
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,936,678
<SECURITIES> 49,583
<RECEIVABLES> 683,715
<ALLOWANCES> 0
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<CURRENT-ASSETS> 6,020,425
<PP&E> 65,259,691
<DEPRECIATION> 13,946,920
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0
0
<COMMON> 0
<OTHER-SE> 4,135,038
<TOTAL-LIABILITY-AND-EQUITY> 59,380,401
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<TOTAL-REVENUES> 4,235,464
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